Research and development of new drugs by pharmaceutical and biotechnology companies consists of five interdependent activities.
These are funding, facilities construction and staffing, basic science and technology research or acquisition, analysis of new medical therapy needs, and selection of newly found drugs for actual product development based on projected market analysis and expected regulatory approval.
Profits are reinvested for R&D, but other sources include license sales, private investors, government subsidies, divestitures, lay-offs and overhead cuts.
Stock flotation and preserving stock value by meeting market expectations about new drug developments are also important sources of capital.
Drug companies build and staff their own multi-million dollar basic science and technology research facilities, but also outsource science research and acquire advanced technologies to manage risk and flexibly invest in infrastructure only as needed for profitable lines of development in dynamic markets.
Research focuses on medical areas of great need where the company has unique and dominant technical and competitive competence.
"Me-too" drugs similar to what is already on the market are developed only where there is a market advantage from improved safety, effectiveness or treatment cost-benefit.
Drug companies make ruthless choices about which of their researched drugs will actually go into development.
Prospective drugs must have high projected market share; expected superiority in safety, effectiveness, and cost-benefit; and quick profitability or long market life after regulatory approval.
Companies will kill otherwise promising drugs which show poor results in early clinical trials.
Some companies have separated research from development in order to expedite development.
